Interest income on sales-type leases increased by 29.3% to US$6.12 million.

Total sales were US$19.16 million, increased by 37.7%.

Net income was US$6.59 million, increased by 76.5%.

Basic and fully diluted earnings per share (EPS) was US$0.11.

Summary of Financial Results:

(US$ in thousands, except for per share data)

Three Months Ended June 30

2014

2013

Total Sales (1) + (2)

19,157

13,913

(1) Sales of Systems

18,946

13,623

(2) Contingent Rental Income

211

290

Gross Profit

4,562

3,411

Interest Income on Sales-Type Leases

6,115

4,729

Total Operating Income

10,677

8,139

Net Income

6,589

3,733

Basic EPS

0.11

0.07

Diluted EPS

0.11

0.07

Mr. Guohua Ku, Chairman and CEO of CREG commented, “We are very happy to report strong growth in our top and bottom lines for the second quarter of 2014. We are particularly pleased with the substantial growth in net income and our progress in systems sales. During the quarter, we sold a 15 MW coke oven gas power generation station through a sales-type lease to Qitaihe City Boli Yida Coal Selection Co., Ltd. (“Qitaihe Yida”), which has been converted from a 15 MW coal gangue power generation station. It has brought us a one-time sales of systems revenue of about US$19 million and will generate recurring interest income on sales-type lease during the leasing period of 15 years. It’s important to note that system sales revenue on the project is recognized at the point of system delivery and monthly lease payments, based on our off-take agreements with the customer, beginning immediately thereafter.”

“While we see substantial opportunities ahead of us, the extent to which we grow our business, especially energy saving and recycling projects, depends on our ability to raise capital on economically attractive terms. We have recently entered into a Standby Equity Distribution Agreement with YA Global Master SPV Ltd. (“YA Global”). Under the terms of the agreement, YA Global is committed to purchase up to US$50 million of our common stock over a period of 2 years. This should help us expand our business more rapidly. However, we have absolute discretion to determine the timing of the capital raise at the right price.”

“Looking ahead, we expect that our interest income on sales-type leases will remain strong through the rest of 2014. In addition, we currently have six projects under construction and we expect two projects to be completed in 2014 and three projects to be completed in 2015. In addition, we have two contracts for CDQ waste heat power generation systems and several framework agreements for CDQ waste heat power generation systems signed recently. With such a strong backlog, we believe we are well positioned to capitalize on the increasing demand in China’s energy saving and recycling markets as long as we can continue to obtain appropriate funding.”

Second Quarter 2014 Financial Results

SALES. Total sales, including sales of systems and contingent rental income, were US$19.16 million for the second quarter of 2014, as compared with US$13.91 million for the same period of 2013, an increase of US$5.24 million, or 37.7%, as a result of an increase in the sales of systems in the second quarter of 2014.

Sales of systems for the second quarter of 2014 were US$18.95 million, increased by 39.1% as compared with US$13.62 million for the same period of 2013. For the three months ended June 30, 2014, Yida project – a 15MW WGPG power generation system was sold. In comparison, in the same period of 2013, Shanxi Datong Phase I project – two 3MW BPRT power generation systems were completed and sold. For the three months ended June 30, 2014, the Company received contingent rental income of US$0.21 million from the usage of electricity in addition to the minimum lease payments, compared to US$0.29 million for the comparable period in 2013. For sales-type leases, sales and cost of sales are recorded at the time of the lease commencement; in addition to systems sales revenue, CREG’s other major source of revenues is interest income from sales-type leases.

COST OF SALES. Cost of sales for the second quarter of 2014 was US$14.59 million, an increase of 39.0% as compared with US$10.50 million in the same period of 2013. This increase was mainly due to the sale of the Yida project.

GROSS PROFITand GROSS MARGIN. Gross profit was US$4.56 million for the second quarter of 2014, an increase of 33.8% compared with US$3.41 million for the same period of 2013. Blended gross margin for the second quarter of 2014 was 24%, compared with 25% for the same period of 2013. The decreased profit margin for the second quarter of 2014 was mainly attributable to less contingent rental income received in the quarter.

INTEREST INCOME ON SALES TYPE LEASES. Interest income on sales-type leases, which is a major and consistent regular revenue for the Company, was US$6.12 million for the second quarter of 2014, an increase of 29.3% from US$4.73 million for the same period of 2013. During the second quarter of 2014, interest income was derived from fifteen sales-type leases, including TRT system to Zhangzhi (13 year term), CHPG systems to Jing Yang Shengwei (5 year term), BMPG systems to Pucheng Phase I and II (15 year and 11.9 year, respectively), BMPG systems to Shenqiu Phase I (11 year term) and Shenqiu Phase II (9.5 year term), WHPG system of Zhongbao (9 year term), WHPG systems of Jitie (24 year term), two BPRT systems to Datong (30 year term), and five power and steam generating systems to Erdos (20 year term). In comparison, during the same period of 2013, interest income was derived from twelve systems.

OPERATING EXPENSES. Operating expenses totaled US$0.76 million for the second quarter of 2014, an increase of 11.6% as compared with US$0.68 million in the same period of 2013. The increase was mainly due to an increase of US$0.14 million consulting expense, but offset with certain office expenses.

NON-OPERATINGINCOME (EXPENSES). Non-operating expenses consisted of non-sales-type lease interest income, interest expenses, bank charges and miscellaneous expenses. For the second quarter of 2014, net non-operating expenses were US$1.35 million, compared with US$1.23 million for the same period of 2013.

INCOME TAX EXPENSE.Income tax expense was US$2.00 million for the three months ended June 30, 2014, decreased by 15.4% compared with US$2.37 million for the same period of 2013. The decrease in income tax expense was mainly due to a decrease in consolidated effective income tax rate, which was 23.4% for the three months ended June 30, 2014, compared with 38.0% for the same period of 2013. This is mainly due to the 15% preferential income tax rate of the Company’s wholly owned subsidiary Xi’an TCH in 2014, and income tax rate of Xi’an TCH for the second quarter of 2013 was 25%. In July 2013, Xi’an TCH was re-approved for high-tech enterprise status and enjoyed 15% preferential income tax rate effective on January 1, 2013.

NET INCOME. Net income for the second quarter of 2014 was US$6.59 million, an increase of US$2.86 million, or 76.5% compared with US$3.73 million for the same period of 2013. This increase in net income was mainly due to the increased sales, interest income on sales-type leases, and decreased income tax expenses compared with the same period of 2013.

For the second quarter of 2014, basic and fully diluted EPS was US$0.11, compared with US$0.07 in the same period of 2013.

Financial Position as of June 30, 2014

As of June 30, 2014, the Company had cash and cash equivalents of US$6.62 million. Other current assets were US$18.71 million and current liabilities were US$52.04 million. Total shareholders’ equity was US$162.91 million, as compared with US$154.68 million as of December 31, 2013.The net tangible asset per share was US$2.67 as of June 30, 2014.

Net Investment in Sales-Type Leases as of June 30, 2014

The components of the net investment in sales-type leases as of June 30, 2014 and December 31, 2013 are as follows:

(US$)

June30, 2014

December 31, 2013

Total future minimum lease payments receivable

611,006,335

560,187,391

Less: executory cost

(128,947,539)

(134,447,605)

Less: unearned interest income

(285,665,316)

(241,234,839)

Net investment in sales – type leases

196,393,480

184,504,947

Current portion

7,772,144

9,063,386

Noncurrent portion

188,621,336

175,441,561

As of June 30, 2014, the future minimum rentals to be received on non-cancelable sales-type leases by years were as follows:

2014

45,950,886

2015

44,636,372

2016

44,636,372

2017

44,636,372

2018

44,452,417

Thereafter

386,693,916

Total

US$611,006,335

Recent Business Development

By the end of June, 2014, the Company leased a new 15MW WGPG system to Qitaihe City Boli Yida Coal Selection Co., Ltd. A CHPG system leased by Jing Yang Shengwei expired on June 30, 2014 and the Company has transferred the system to the customer according to the agreement

On July 8, 2014, the Company entered into a Standby Equity Distribution Agreement with YA Global Master SPV Ltd. (“YA Global”). Under the terms of the agreement, YA Global is committed to purchasing up to US$50 million of the Company’s common stock over a period of 2 years.

Systems under Sales-Type Leases

The Company currently have 15 sales-type leases for energy saving and recycling systems with a total capacity of 141 MW. These 15 systems are summarized in the table below.

System Type

Project Name

Project Period

Capacity (MW)

Investment

(US$ in Millions)*

Minimum Annual Recurring Cash Flow Receipts (US$ in Millions)*

From

To

Project Life (Year)

TRT

Zhangzhi

Q2 2007

Q2 2020

13

9.0

4

2.1

BMPG

Pucheng Phase I

Q3 2010

Q2 2024

15

12.0

19

3.7

Pucheng Phase II

Q3 2013

Q2 2025

11.9

12.0

17

3.7

WHPG

Zhongbao

Q4 2010

Q3 2019

9

7.0

9

2.9

BMPG

Shenqiu Phase I

Q3 2011

Q3 2022

11

12.0

14

3.5

Shenqiu Phase II

Q2 2013

Q3 2022

9.5

12.0

11

2.9

BPRT

Shanxi Datong No.1

Q3 2013

Q2 2043

30

3.0

6

1.2

Shanxi Datong No.2

Q3 2013

Q2 2043

30

3.0

6

1.2

Power and steam generating system

Erdos Phase I-No.1

Q1 2010

Q4 2029

20

9.0

10

2.9

Erdos Phase I-No.2

Q2 2010

Q1 2030

20

9.0

10

2.9

Erdos Phase II-No.1

Q1 2011

Q4 2030

20

9.0

11

2.9

Erdos Phase II-No.2

Q2 2011

Q1 2030

20

9.0

9

2.9

Erdos Phase II-No.3

Q1 2011

Q4 2030

20

9.0

13

2.9

WHPG

Jitie

Q1 2014

Q1 2038

24

11.0

10

3.5

WGPG

Yida

Q3 2014

Q2 2029

15

15.0

19

5.9

Total

141.0

168

45.1

*Note: exchange rate of RMB 6.1528 to US $1.00 as of June 30, 2014

Systems under Construction

In addition, the Company currently has 6 projects under construction, with a total capacity of 135MW. All 6 projects are progressing well and on schedule. By the time they are completed, the total capacity of projects in operation will be nearly doubled.

System Type

Project Name

Capacity (MW)

Investment

(US$ in Millions)**

Expected Completion

WGPG

Shanxi Datong Coal Group

15.0

20

Second Half of 2014

CDQ

Xuzhou Tian’an

25.0

33

Second Half of 2015

CDQ

Xuzhou Huayu

25.0

33

Second Half of 2015

CDQ

Shandong Boxing

25.0

33

Second Half of 2014

CDQ

Xuzhou Zhongtai

25.0

34

Second Half of 2015

CDQ

Tangshan Rongfeng

20.0

24

First Half of 2016

Total

135.0

177

–

**Note: exchange rate of RMB 6.1528 to US $1.00 as of June 30, 2014

Financial Results Conference Call

The Company will host a conference call at 8:30 a.m. EDT on Friday, August 15, 2014, to discuss the Company’s second quarter 2014 financial results. Mr. Guohua Ku, Chief Executive Officer, and Mr. David Chong, Chief Financial Officer, will be hosting the call.

For more information regarding China Recycling Energy Corp.’s financial performance during the second quarter ended June 30, 2014, please refer to the Quarterly Report on Form 10-Q, which was filed with the Securities and Exchange Commission on August 14, 2014.

About China Recycling Energy Corp.

China Recycling Energy Corp. (NASDAQ: CREG or “the Company”) is based in Xi’an, China and provides environmentally friendly waste-to-energy technologies to recycle industrial byproducts for steel mills, cement factories and coke plants in China. Byproducts include heat, steam, pressure, and exhaust to generate large amounts of lower-cost electricity and reduce the need for outside electrical sources. The Chinese government has adopted policies to encourage the use of recycling technologies to optimize resource allocation and reduce pollution. Currently, recycled energy represents only an estimated 1 percent of total energy consumption and this renewable energy resource is viewed as a growth market due to intensified environmental concerns and rising energy costs as the Chinese economy continues to expand. The management and engineering teams have over 20 years of experience in industrial energy recovery in China. For more information about CREG, please visit http://www.creg-cn.com.

Safe Harbor Statement

This press release may contain certain “forward-looking statements” relating to the business of China Recycling Energy Corp. and its subsidiary companies. All statements, other than statements of historical fact included herein are “forward-looking statements.” These forward-looking statements are often identified by the use of forward-looking terminology such as “believes,” “expects” or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company’s periodic reports that are filed with the Securities and Exchange Commission and available on its website at http://www.sec.gov. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

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